It was another busy year for liquor and beer laws at the Tennessee General Assembly. Although most citizens were watching the wine in grocery stores legislation, a number of important liquor industry bills passed, and many failed.

Tastings Kosher at Package Stores. State law now allows retail liquor stores to offer tastings inside the store. This is a major change from prior law, which limited liquor stores to selling wine and spirits, selling lottery tickets and cashing checks. Liquor stores could also do tastings off-site, but every other business was illegal. The new law simply provides: "a retail licensee may offer complimentary samples of the products it sells for tastings to be held on the premises of the retail licensee. Such tastings shall be for sales, education and promotional purposes." The law prohibits wholesalers from providing any products, funding, labor, support or reimbursement for tastings. Unlike LBD tastings, no notice is required and servers do not have to hold server ABC permits. In fact, the law does not require servers, leaving open the possibility of self-service by customers. There is no limitation on the number or duration of tastings - it may be legal to leave bottles up front for customers to sample as desired. The law raises many questions. Liquor stores cannot sell mixers. Can they provide mixers with spirits? How about ice? Can stores even provide glassware or plastic for serving wine and spirits - they certainly cannot sell it? Can food be served? The ABC plans to adopt regulations for retail tastings and the process is set to begin this week. Long Live the ABC. In prior legislative sessions, there has been discussion about merging the ABC with another agency. The ABC has been plagued by a bad audit that disclosed bad cash management procedures and employee theft auditors thought was not properly handled, among other issues. Last year, the ABC was approved at the eleventh hour of the legislative session. The future of the ABC is a little brighter after this year’s legislature extended the life of the ABC through June 30, 2013, and did so relatively early in the session, without much fan fare.

Mail Order Wine to Dry Counties. The legislature removed a restriction on the direct shipment license that previously limited direct shipment sales to “wet” cities and counties. Now, you can order wine from any licensed winery by mail, anywhere in the State of Tennessee.

Shelby County. This law fixes a problem in unincorporated areas outside Memphis. For years, there has been confusion about Memphis’ city limits. Over the years, a handful of restaurants were issued liquor licenses because they appeared to be in Memphis, but were actually located in dry areas of Shelby County. Liquor by the drink is legal in Memphis and the suburban cities inside Shelby County. Liquor by the drink was not legal in unincorporated areas of Shelby County, where the handful of restaurants were operating with liquor licenses, but not legally authorized to sell liquor. This law legalizes liquor by the drink in unincorporated areas of Shelby County.

Adventure Tourism. This law creates a significant tax credit for creation of “adventure tourism” jobs. The law is complicated, but for qualifying businesses, we read the bill as providing a tax credit of $4,500 for three years for each new adventure tourism job. The state department of tourist development is charged with defining what jobs are adventure tourism. For creative entrepreneurs, this could be an attractive opportunity. $13,500 over three years is a big incentive to create jobs.

Wholesalers Importing. Rumor has it that some wholesalers have been acting as importers of wine and spirits, although the practice was not specifically authorized by Tennessee law. With the proper permit, the practice is now clearly legit.
Lexington. Most folks ask why we are reporting about a Kentucky law, but yes, Virginia, there is a Lexington, Tennessee. The law authorizes Lexington, by ordinance adopted by a two-thirds vote, to levy an occupancy tax on the privilege of staying in any hotel or motel in Lexington. Lexington can set the rate of the privilege tax; but the proceeds must be spent for “tourism development.”

A City United. Goodlettsville, a city long divided by county lines for alcohol, will now be able to conduct a referendum for the sale of alcoholic beverages at retail package stores in the Sumner County portions of the city.

Sunday Sales. The law sets the hours for the sale of beer on Sunday in a county to be the same as the hours set by a municipality that adopts liquor-by-the-drink in a referendum. The law does not apply if the county legislative body by a 2/3 vote has already set the hours for the sale of beer on Sunday in areas outside the municipality.

As usual, a few pet projects in dry areas were designated as Premier Type Tourist Resorts. Here is our best guess at who gets liquor:

Buffalo River Resort in Perry County, which has 95 acres, three log cabins, 20 RV pads and a 40-seat restaurant.

East Fork Stables in Jamestown, with space to hold up to 220 horses and a restaurant.

The nonprofit Franklin Theatre may sell alcoholic beverages for consumption on premises.

Blue Porch Inn in Rutherford County may sell alcoholic beverages for consumption on premises.

Woodlake Golf Club in the East Tennessee town of Tazewell may sell alcoholic beverages for on-premises consumption.

The National Ornamental Metal Museum in Memphis may sell alcoholic beverages..

The special license in dry areas known as “Tennessee River Resort District” now includes a limited service restaurants, which is last year’s new license for places that sell less than 50% food.

Down and Out for 2011
Here are some bills of interest that failed.

Wine in Grocery Stores. The bill was not expected to advance this year, and indeed it did not. Insiders reported that last legislative session, a deal was struck to defer serious consideration of wine until 2012. Read more about our analysis at Will Cheek's Blog.

Pay the Piper. The bill would have required that all ABC fines be paid before renewal of liquor licenses and specifically authorize the ABC to charge costs from setting citations for hearing. The ABC has historically required payment of all outstanding citations at renewal, and this bill would have made it law. In addition, the bill would have required licensees to pay the expenses of setting a citation for hearing, even if the citation settled. This would have been an effective tool for the ABC to clear a backlog of older citations. Currently, some licensees ignore citations because there are no clear consequences. The bill died in the House for no apparent reason.

LBD Audits. The bill would have changed the method to audit taxes paid on alcoholic beverages sold in restaurants. The current system simply taxes restaurants based on a formula derived from the wholesale sales to the restaurant. The bill would have directed the commissioner of revenue to explore the possibility of developing an on-line filing system which would permit the automatic deduction from the collector's business account for the payment of the tax due on sales of mixed drinks and setups.

Selling on Satellite. As introduced, would have allowed TN licensed wineries to conduct business at up to two satellite locations, allowing wineries to locate in urban tourist areas, among other places.

New License Fees. This bill would have required the ABC to implement a new licensing fee structure for restaurants and limited service restaurants based on liability insurance codes. Present fees are based on percentages of food service. Some saw this as a way to assess higher fees for riskier businesses such as nightclubs.

Order Up Red Bull and Vodka. With caffeinated alcohol drinks being banned at the federal level, legislators tried to extend the ban to mixed “energy” drinks at bars. The bid to say goodbye to selling caffeinated mixed drinks this year failed. In all fairness, it is difficult to craft a law that bans Red Bull and Vodka, but allows Jack and Coke.

For Profit Movie Theaters Stay Dry. Bills to allow liquor sales at a Knox County Theatre and two Nashville theaters were rejected. The Davidson County proposal required one auditorium to be restricted to patrons 21 years of age or older. Although a few nonprofit theaters have been approved for liquor, the legislature clearly declined to extend the right to for profit businesses.

*Many thanks to our intern, Eliot Goldfarb, for his research and input to this year's Legislative Recap. Eliot is a recent graduate of USN and is part of our service center team for the summer.

The TABC revised regulations governing all liquor licensees. Our Alcoholic Beverage Group is pleased to highlight the major changes for you. Grouped by the license held, the summaries should not replace consultation or full review. Contact Will Cheek or Chris Raybeck with questions.

General Applicability—All Types of Licensees

Responsible Vendor Mitigation Program: The TABC has established an informal program for licensees, similar to that of the responsible vendor for beer retailers. Licensees following the program may have fines alleviated (by up to half) for any citations. The program requires a written policy that all employees complete a course in alcohol awareness (including training on applicable laws and regulations) and annual refresher courses.

Prior Approval of Advertisements: In most cases, prior TABC approval of advertising copy is no longer necessary.

Liquor-by-the-Drink (“LBD”) and Catering

Advertising. The ABC eliminated the rules prohibiting advertising happy hour and drink prices. Licensees may now advertise both, provided the happy hour on liquor ends at 10:00 p.m. and the drink price covers the cost of the ingredients. Outside signs and billboards may advertise the name of a licensed establishment and the name of a particular brand of alcohol, as long as the LBD licensee pays for the advertising. Also, availability of alcoholic beverages can be advertised on radio and TV, subject to the same restrictions imposed on other types of licensees.

Marketing. While licensees are still prohibited from giving away alcohol, the term “give” has been refined by replacing the word “drink” with “alcoholic beverage or wine.” Also, LBD licensees have been removed from the regulation restricting advertising novelties and specialties to consumers, broadening the types of items LBD licensees may give to customers.

Managers: The TABC has specified that new managers and assistant managers have seven days to submit questionnaires to the TABC or face a citation. Also, all managers and assistant managers should expect to need their own server permits, if they supervise those who serve alcohol.

Seating: The TABC has specified that seats at bars will be counted toward the minimum 75-seat restaurant requirement if the bar is big enough and if meals are regularly served there. Patio seating that is not heated and cooled year-round will not count toward the minimum seating requirement but will count toward the seat count for license fees.

Server Permits: Temporary server permits will no longer be issued. Also, LBD licensees must have available for review documentation of the date of hire (dated employment application, dated W-4, etc.) of all servers and managers on premises. Without it, it will be assumed the employee has been working for more than 61 days.

Changing Locations: For LBD licensees who want to change locations, an abbreviated application process is now available.

Catering. For the first time, there are regulations explicitly governing catering licensees.

Retail Licensees (Off-Premises Consumption)

Direct Mail: Retailers now only need a written request authorizing direct mail, eliminating the requirement of signing the request on–premises. The rules require removal of recipients within 30 days of the second request to remove.

Donations to 501(c)(3) Organizations: Retailers are authorized to make withdrawals from inventory for donations to non-profits with 501(c)(3) exempt status.

Tastings / Consumer Education: Written notification to the TABC is required for tastings where the retailer hosts, sponsors, or provides an employee to work at the tasting (not just where alcohol is consumed). The $50 processing fee for notifications has been eliminated. Also, employee-only tastings may be held on the retailer’s premises in areas not accessible to the public.

Marketing: Retailers may sell gift cards to consumers.

Manufacturers / Importers and Wholesalers

Visits to Retailers: The regulations have been revised to allow manufacturers and importers to visit retailers—on and off-premises consumption—for the purpose of promoting products or attending to displays.

Non-Resident Sellers: For the first time, there are regulations that explicitly govern non-resident importers and application requirements.

Wholesaler Deliveries: Employees of wholesalers may now deliver up to 20 cases of alcohol in vehicles that are not owned or leased by the wholesaler, and the wholesaler name need not be affixed to the vehicle. But, the employee must possess documentation with the seller and purchaser identity and type and size of delivery. Also, the regulations have removed the restriction that a wholesaler may deliver to another wholesaler only if in the same county.

Retail Orders; Wholesaler Employee Permits: Wholesalers are expressly prohibited from delivering and invoicing part of an order made by one retailer to another retailer. Wholesaler employee permits are not explicitly valid for 5 years.

Tied-House Provisions: The regulations prohibiting tied-houses now include references to third-party marketing entities, which are not allowed as intermediaries between industry members (manufacturers, importers, and wholesalers) and retailers. The regulations now explicitly prohibit arrangements that result in exclusion of brands. The monetary value of items that may be provided to retailers by industry members is now aligned with TTB amounts. Industry members may supply outside signs to retailers, and the allowable point-of-sale advertising materials have been updated. Industry members may provide retailers with routine business entertainment (meals, events, parties), subject to restrictions.

Donations: Industry members are authorized to withdraw from inventory donations to special occasion permittees; manufacturers must do so through wholesalers.

Wineries

Record-Keeping: Records regarding the source of all agricultural products used in wine production must be kept for three years. All Tennessee-licensed wineries must file, with the TABC, their contracts with Tennessee grape growers regarding their intention to purchase grapes.

Sale on Premises: The 15,000 gallon / 20% rule for annual on-premises sales has been deleted in favor of the amounts allowed by state statute.

Samples; Selling Non-Wine Products: The regulations now provide that wineries may provide samples to winery visitors in certain limited areas of the winery. Also, wineries may now sell gift-related items with wine themes or related to wine drinking.

Beer Permittees / Responsible Vendor Program

For the first time, there are regulations that explicitly govern off-premises beer permittees that have enrolled in the Responsible Vendor Program. Many of the regulations simply articulate the TABC’s past practices.

Non-Profits (Special Events)

Regulations have been made explicitly governing special occasion permits, one-day permits allowing alcohol service in a specifically designated area by “qualified entities” (non-profits). A formal application process is set forth, and proceeds from the special event must be deposited with the special occasion

The TABC revised regulations governing all liquor licensees. Our Alcoholic Beverage Group is pleased to highlight the major changes for you. Grouped by the license held, the summaries should not replace consultation or full review. Contact Will Cheek or Chris Raybeck with questions.

General Applicability—All Types of Licensees

Responsible Vendor Mitigation Program: The TABC has established an informal program for licensees, similar to that of the responsible vendor for beer retailers. Licensees following the program may have fines alleviated (by up to half) for any citations. The program requires a written policy that all employees complete a course in alcohol awareness (including training on applicable laws and regulations) and annual refresher courses.

Prior Approval of Advertisements: In most cases, prior TABC approval of advertising copy is no longer necessary.

Liquor-by-the-Drink (“LBD”) and Catering

Advertising. The ABC eliminated the rules prohibiting advertising happy hour and drink prices. Licensees may now advertise both, provided the happy hour on liquor ends at 10:00 p.m. and the drink price covers the cost of the ingredients. Outside signs and billboards may advertise the name of a licensed establishment and the name of a particular brand of alcohol, as long as the LBD licensee pays for the advertising. Also, availability of alcoholic beverages can be advertised on radio and TV, subject to the same restrictions imposed on other types of licensees.

Marketing. While licensees are still prohibited from giving away alcohol, the term “give” has been refined by replacing the word “drink” with “alcoholic beverage or wine.” Also, LBD licensees have been removed from the regulation restricting advertising novelties and specialties to consumers, broadening the types of items LBD licensees may give to customers.

Managers: The TABC has specified that new managers and assistant managers have seven days to submit questionnaires to the TABC or face a citation. Also, all managers and assistant managers should expect to need their own server permits, if they supervise those who serve alcohol.

Seating: The TABC has specified that seats at bars will be counted toward the minimum 75-seat restaurant requirement if the bar is big enough and if meals are regularly served there. Patio seating that is not heated and cooled year-round will not count toward the minimum seating requirement but will count toward the seat count for license fees.

Server Permits: Temporary server permits will no longer be issued. Also, LBD licensees must have available for review documentation of the date of hire (dated employment application, dated W-4, etc.) of all servers and managers on premises. Without it, it will be assumed the employee has been working for more than 61 days.

Changing Locations: For LBD licensees who want to change locations, an abbreviated application process is now available.

Catering. For the first time, there are regulations explicitly governing catering licensees.

Retail Licensees (Off-Premises Consumption)

Direct Mail: Retailers now only need a written request authorizing direct mail, eliminating the requirement of signing the request on–premises. The rules require removal of recipients within 30 days of the second request to remove.

Donations to 501(c)(3) Organizations: Retailers are authorized to make withdrawals from inventory for donations to non-profits with 501(c)(3) exempt status.

Tastings / Consumer Education: Written notification to the TABC is required for tastings where the retailer hosts, sponsors, or provides an employee to work at the tasting (not just where alcohol is consumed). The $50 processing fee for notifications has been eliminated. Also, employee-only tastings may be held on the retailer’s premises in areas not accessible to the public.

Marketing: Retailers may sell gift cards to consumers.

Manufacturers / Importers and Wholesalers

Visits to Retailers: The regulations have been revised to allow manufacturers and importers to visit retailers—on and off-premises consumption—for the purpose of promoting products or attending to displays.

Non-Resident Sellers: For the first time, there are regulations that explicitly govern non-resident importers and application requirements.

Wholesaler Deliveries: Employees of wholesalers may now deliver up to 20 cases of alcohol in vehicles that are not owned or leased by the wholesaler, and the wholesaler name need not be affixed to the vehicle. But, the employee must possess documentation with the seller and purchaser identity and type and size of delivery. Also, the regulations have removed the restriction that a wholesaler may deliver to another wholesaler only if in the same county.

Retail Orders; Wholesaler Employee Permits: Wholesalers are expressly prohibited from delivering and invoicing part of an order made by one retailer to another retailer. Wholesaler employee permits are not explicitly valid for 5 years.

Tied-House Provisions: The regulations prohibiting tied-houses now include references to third-party marketing entities, which are not allowed as intermediaries between industry members (manufacturers, importers, and wholesalers) and retailers. The regulations now explicitly prohibit arrangements that result in exclusion of brands. The monetary value of items that may be provided to retailers by industry members is now aligned with TTB amounts. Industry members may supply outside signs to retailers, and the allowable point-of-sale advertising materials have been updated. Industry members may provide retailers with routine business entertainment (meals, events, parties), subject to restrictions.

Donations: Industry members are authorized to withdraw from inventory donations to special occasion permittees; manufacturers must do so through wholesalers.

Wineries

Record-Keeping: Records regarding the source of all agricultural products used in wine production must be kept for three years. All Tennessee-licensed wineries must file, with the TABC, their contracts with Tennessee grape growers regarding their intention to purchase grapes.

Sale on Premises: The 15,000 gallon / 20% rule for annual on-premises sales has been deleted in favor of the amounts allowed by state statute.

Samples; Selling Non-Wine Products: The regulations now provide that wineries may provide samples to winery visitors in certain limited areas of the winery. Also, wineries may now sell gift-related items with wine themes or related to wine drinking.

Beer Permittees / Responsible Vendor Program
For the first time, there are regulations that explicitly govern off-premises beer permittees that have enrolled in the Responsible Vendor Program. Many of the regulations simply articulate the TABC’s past practices.

Non-Profits (Special Events)
Regulations have been made explicitly governing special occasion permits, one-day permits allowing alcohol service in a specifically designated area by “qualified entities” (non-profits). A formal application process is set forth, and proceeds from the special event must be deposited with the special occasion

On the eve of adjournment, the legislature created a new liquor license that allows establishments selling fifteen percent or more of “prepared food” to obtain a new limited service restaurant license. The law legalizes the vast majority of bars and entertainment venues that did not qualify as a “restaurant” under prior law, which required that the sale of food be the “primary business.” The legislation also clarified the existing definition of “restaurant,” by requiring that a restaurant derive fifty percent or more of its income from the sale of food.

The new limited service restaurant license has graduated license fees ranging from $2,000 to $4,000, depending on the percentage of food sales. The license also requires adequate security and a number of other minor modifications to the existing restaurant law.

On the eve of adjournment, the legislature created a new liquor license that allows establishments selling fifteen percent or more of “prepared food” to obtain a new limited service restaurant license. The law legalizes the vast majority of bars and entertainment venues that did not qualify as a “restaurant” under prior law, which required that the sale of food be the “primary business.” The legislation also clarified the existing definition of “restaurant,” by requiring that a restaurant derive fifty percent or more of its income from the sale of food.

The new limited service restaurant license has graduated license fees ranging from $2,000 to $4,000, depending on the percentage of food sales. The license also requires adequate security and a number of other minor modifications to the existing restaurant law.

As usual, the legislature added a long list of premier-type tourist resorts and other special legislation to allow liquor licenses in places that are otherwise dry. Rejoice Sewanee Tigers, you can now legally purchase wine and spirits at The Sewanee Inn. The following is our compilation of the new watering holes, based on the best information available:

In a departure from tradition, the Majestic Theatre in Chattanooga appears to be the first for-profit theater that is licensed for wine and liquor service. The handful of other theaters previously legalized for the sale of alcohol are all nonprofit.

As usual, the legislature added a long list of premier-type tourist resorts and other special legislation to allow liquor licenses in places that are otherwise dry. Rejoice Sewanee Tigers, you can now legally purchase wine and spirits at The Sewanee Inn. The following is our compilation of the new watering holes, based on the best information available:

In a departure from tradition, the Majestic Theatre in Chattanooga appears to be the first for-profit theater that is licensed for wine and liquor service. The handful of other theaters previously legalized for the sale of alcohol are all nonprofit.

Distilleries: The legislature allowed distilleries to charge for tours and tastings conducted in connection with tours. Previously, no charge could be required for tastings, which prevented distilleries from requiring patrons to attend a paid tour in order to participate in tastings. The legislature also authorized distilleries to provide samples for marketing purposes, after all taxes have been paid, and tweaked the location restrictions.

Collector License: The legislature created a new license for collectors of commemorative bottles that contain alcoholic beverages. Readers may recall the seizure of collectable Jack Daniels bottles a few years ago, which drew national attention when it appeared that the seized inventory would be destroyed. The new collector license legalizes the practice that led to the seizure.

Transportation: The laws concerning the amounts of alcohol one can legally transport through dry and other counties were modified to uniformly legalize transportation of less than five gallons of alcoholic beverages or wine for personal or household use. Previously, the amounts varied and were arguably in conflict.

Lakewood: The legislature passed a technical correction that allows liquor stores licensed within the area formerly known as Lakewood to be issued renewal licenses and to stay in business.

Distilleries: The legislature allowed distilleries to charge for tours and tastings conducted in connection with tours. Previously, no charge could be required for tastings, which prevented distilleries from requiring patrons to attend a paid tour in order to participate in tastings. The legislature also authorized distilleries to provide samples for marketing purposes, after all taxes have been paid, and tweaked the location restrictions.

Collector License: The legislature created a new license for collectors of commemorative bottles that contain alcoholic beverages. Readers may recall the seizure of collectable Jack Daniels bottles a few years ago, which drew national attention when it appeared that the seized inventory would be destroyed. The new collector license legalizes the practice that led to the seizure.

Transportation: The laws concerning the amounts of alcohol one can legally transport through dry and other counties were modified to uniformly legalize transportation of less than five gallons of alcoholic beverages or wine for personal or household use. Previously, the amounts varied and were arguably in conflict.

Lakewood: The legislature passed a technical correction that allows liquor stores licensed within the area formerly known as Lakewood to be issued renewal licenses and to stay in business.

The legislature extended the duration of the ABC as an independent state agency until June 30, 2011. During the legislative session, there was informal discussion of merging the ABC with other agencies, including the Department of Revenue. Backers of merging state agencies claim that the state will save significantly on redundant services, such as computer support, clerical staff, rent and storage.

We expect that the future of the ABC will continue to be discussed during the upcoming year. Follow the progress at our blog Last Call for updates.

The legislature extended the duration of the ABC as an independent state agency until June 30, 2011. During the legislative session, there was informal discussion of merging the ABC with other agencies, including the Department of Revenue. Backers of merging state agencies claim that the state will save significantly on redundant services, such as computer support, clerical staff, rent and storage.

We expect that the future of the ABC will continue to be discussed during the upcoming year. Follow the progress at our blog Last Call for updates.

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